No all-clear yet for European banks after SVB collapse – German economist

FILE PHOTO: Marcel Fratzscher, chairman of the German Institute for Economic Research, speaks during an interview with Reuters in his office in Berlin, Germany

BERLIN (Reuters) – European banks are not completely in the clear after the collapse of Silicon Valley Bank and Signature Bank even though they do not face a systemic risk, the president of German economic research group DIW said on Tuesday.

While there are many reasons to be less cautious, “I wouldn’t give the all-clear (in Europe), because the root cause of the woes of these two U.S. banks is the very rapid increase in interest rates, and that caught many people off-guard”, Marcel Fratzscher said.

Leverage in the United States is much higher than in Europe, said Fratzscher in regard to SVB’s extreme imbalance between short-term liabilities and long-term investments, which had lost value with the increase in interest rates.

But he said many European banks were also facing this issue.

“We have to be very careful,” Fratzscher said, adding that German banks haven’t fully recovered from the 2008 financial crisis initiated by the fall of Lehman Brothers, which had “systemic meaning” and caused a domino effect.

“We don’t see that in the case of SVB, which is relatively small,” he said.

(Reporting by Maria Martinez; Editing by Miranda Murray and Alison Williams)